We're often asked if estate planning strategies fall within the realm of the investment guidance services offered by wealth advisors. The answer is a resounding "yes!”
In fact, we like to tell our clients that good wealth advisors will not only help with estate planning, but they’ll go above and beyond to ensure that you’ve done it – and then help you to keep it updated going forward.
Estate planning is an essential component to your financial well-being and your advisor should work cooperatively with your estate planning attorney and your tax professional to ensure that your future financial affairs are in order. Here are a few strategies to discuss with your advisor.
Estate Planning Strategy #1: Trust vs. Will
Though both of these instruments help direct the actions to be taken after your death, they offer different benefits. Typically, it costs less to create a will than a living trust. Trusts, on the other hand, direct actions to be taken while you’re still living, if deemed necessary. Trusts also offer benefits such as:
More detailed instructions for your estate
Not a matter of public record - it is a private process
Avoids probate court, which saves the estate both time and money
Estate Planning Strategy #2: Power of Attorney
Most people understand Power of Attorney (POA) as the legal right and obligation to make decisions on behalf of the person granting the power. But there are actually two POAs to consider: Healthcare and Financial.
While less-well-known than a Healthcare POA (Health Care Directive), a Financial POA is no less important. Your Financial POA will perform duties such as withdrawing cash from your accounts to purchase food for you, take your required minimum distributions (RMDs) so you don’t incur penalties, and invest your assets in a prudent manner that serves your best interests.
Your Healthcare POA and your Financial POA can be the same person, or you can split the designations between individuals; for instance, perhaps you have a child who’s compassionate to your healthcare needs but not so great at handling money. In that case, you may want to designate different individuals for each POA.
While many people just assume that their spouse or partner will take on the role of POA by default, imagine that the two of you experience an accident or are otherwise rendered incapacitated. Having a confirmed and alternate POA provides peace of mind.
Estate Planning Strategy #3: Legal Guardian of Minor or Special Needs Children
While no one likes to imagine it happening to them, unexpected tragedies take place every day. If you and your spouse or partner are unable to care for your dependents, do you want the legal system to determine who will care for your children?
Next of kin isn’t always the best answer, so don’t leave this important choice up to the courts -- and don’t assume that the named guardian has to take custody. We highly recommend that you discuss legal guardianship with the individual you choose to serve as guardian and ensure that they’re ready and willing to take on the responsibility.
Estate Planning Strategy #4: Successor Trustee
In most cases, you’ll name yourself as the trustee of your trust. Your spouse or partner may also be named as co-trustee, as long as they’re willing and able. However, trusts don’t always cease to exist upon death or the case of incapacitation. In such circumstances, a successor is named as trustee to ensure that the terms of the trust are carried out.
Successor trustees may be family members, friends or even professional trustees -- whoever you choose to name. Note that successor trustees are usually allowed to accept a reasonable fee for their services, but aren’t mandated to accept payment.
As most investment professionals are not also legal counsel, you should always consider investment guidance about estate planning strategies as information, rather than legal advice. You’ll want to consult an estate planning attorney about issues such as trust types, generation skipping, separate property, QTIP trusts and other issues, as well as to ensure that you have a comprehensive, official legal document that represents your wishes. However, your advisor can help you develop the basic building blocks of estate planning.
A trusted wealth advisor with training and experience in these matters can be a great help.